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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549


FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended November 30, 2003
Commission file number 000-13109

LAIDLAW INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)


DELAWARE
    
    
    
    98-0390488(State or other jurisdiction
of incorporation or organization)
    
    
    
    (I.R.S. Employer
Identification No.)


55 Shuman Boulevard, Suite 400
Naperville, Illinois, 60563
(Address of principal executive offices)

Registrants telephone number, including area code (630) 848-3000

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES þ NO o

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act). YES o NO þ

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES þ NO o

As of January 7, 2004, there were 103,806,110 shares of common stock, par
value $0.01 per share, outstanding.





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TABLE OF CONTENTS



|                                             |                                                                                               |                                                        |  |  |  |  |  | 
|-------------------------------------------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------------ |  |  |  |  |  | 
|PART I.  FINANCIAL INFORMATION             
|                                             | Item 1. Financial Statements                                                                 
|                                             |                                                                                               | CONSOLIDATED BALANCE SHEETS                           
|                                             |                                                                                               | CONSOLIDATED BALANCE SHEETS                           
|                                             |                                                                                               | CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|                                             |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS                 
|                                             |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS            
|                                             | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                                             | Item 3. Quantitative and Qualitative Disclosures About Market Risk                           
|                                             | Item 4. Controls and Procedures                                                              
|PART II. OTHER INFORMATION                  
|                                             | Item 1. Legal Proceedings                                                                    
|                                             | Item 6. Exhibits and Reports on Form 8-K                                                     
|SIGNATURES                                  
|Amendment No. 2 to Credit Agreement         
|Principal Executive Officer's Certifications
|Principal Financial Officer's Certifications
|Certification                               



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LAIDLAW INTERNATIONAL, INC.

Page No.PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements:Consolidated Balance Sheets as of November 30, 2003
(Unaudited) and August 31, 2003
    
    
    3Consolidated Statements of Operations for the Three
Months Ended November 30, 2003 and 2002 (Unaudited)
    
    
    5Consolidated Statements of Comprehensive Income (Loss)
for the Three Months Ended November 30, 2003 and 2002
(Unaudited)
    
    
    6Consolidated Statements of Cash Flows for the Three
Months Ended November 30, 2003 and 2002 (Unaudited)
    
    
    7Notes to Consolidated Financial Statements (Unaudited)
    
    
    8Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    25Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    34Item 4.
    
    Controls and Procedures
    
    
    34PART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    35Item 6.
    
    Exhibits and Reports on Form 8-K
    
    
    36SIGNATURES
    
    
    37


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PART I.  FINANCIAL INFORMATION




Item 1. Financial Statements




LAIDLAW INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
($ in millions)

November 30,
    
    August 31,2003
    
    2003(unaudited)ASSETSCurrent assetsCash and cash equivalents
    
    $
    75.1
    
    
    $
    100.3Restricted cash and cash equivalents
    
    
    67.7
    
    
    
    39.4Short-term deposits and marketable securities
    
    
    17.7
    
    
    
    42.0Trade accounts receivable
    
    
    685.6
    
    
    
    502.2Other receivables
    
    
    53.4
    
    
    
    49.6Income taxes recoverable
    
    
    16.0
    
    
    
    18.0Parts and supplies
    
    
    49.9
    
    
    
    50.2Deferred income tax assets
    
    
    69.2
    
    
    
    86.2Other current assets
    
    
    59.0
    
    
    
    60.1Total current assets
    
    
    1,093.6
    
    
    
    948.0Long-term investments
    
    
    552.5
    
    
    
    553.5Property and equipmentLand
    
    
    187.1
    
    
    
    184.3Buildings
    
    
    156.2
    
    
    
    151.1Vehicles
    
    
    1,275.7
    
    
    
    1,228.4Other
    
    
    157.7
    
    
    
    153.61,776.7
    
    
    
    1,717.4Less: Accumulated depreciation
    
    
    124.3
    
    
    
    47.61,652.4
    
    
    
    1,669.8Other assetsGoodwill
    
    
    183.1
    
    
    
    183.1Contracts and customer relationships
    
    
    212.3
    
    
    
    216.9Deferred income tax assets
    
    
    209.8
    
    
    
    203.2Deferred charges and other assets
    
    
    75.8
    
    
    
    78.2681.0
    
    
    
    681.4Total assets
    
    $
    3,979.5
    
    
    $
    3,852.7


The accompanying notes are an integral part of these statements.

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LAIDLAW INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
($ in millions except par value per share)

November 30,
    
    August 31,2003
    
    2003(unaudited)LIABILITIESCurrent liabilitiesAccounts payable
    
    $
    127.0
    
    
    $
    119.4Accrued liabilities
    
    
    477.1
    
    
    
    506.0Current portion of long-term debt
    
    
    76.0
    
    
    
    69.4Total current liabilities
    
    
    680.1
    
    
    
    694.8Long-term debt
    
    
    1,208.8
    
    
    
    1,145.1Pension liability
    
    
    226.0
    
    
    
    225.7Other long-term liabilities
    
    
    526.6
    
    
    
    496.8Total liabilities
    
    
    2,641.5
    
    
    
    2,562.4SHAREHOLDERS EQUITYCommon Shares; $0.01 par value per share; issued and
outstanding 103,806,110 (August 31, 2003  103,777,422)
    
    
    1.0
    
    
    
    1.0Share premium
    
    
    1,358.3
    
    
    
    1,358.3Common shares held in trust; 3,777,419 issued
    
    
    (50.0
    )
    
    
    (50.0
    )Accumulated other comprehensive income (loss)
    
    
    16.0
    
    
    
    (9.1
    )Retained earnings (deficit)
    
    
    12.7
    
    
    
    (9.9
    )Total shareholders equity
    
    
    1,338.0
    
    
    
    1,290.3Total liabilities and shareholders equity
    
    $
    3,979.5
    
    
    $
    3,852.7


The accompanying notes are an integral part of these statements.

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LAIDLAW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
($ in millions except per share amounts)
(unaudited)

PredecessorCompanyThree Months
    
    Three MonthsEnded
    
    EndedNovember 30,
    
    November 30,2003
    
    2002Revenue
    
    $
    1,210.3
    
    
    $
    1,162.2Compensation expense
    
    
    685.0
    
    
    
    658.1Accident claims and professional liability expenses
    
    
    89.6
    
    
    
    96.6Vehicle related costs
    
    
    69.9
    
    
    
    66.5Occupancy costs
    
    
    49.9
    
    
    
    48.6Fuel
    
    
    44.4
    
    
    
    43.5Depreciation
    
    
    76.1
    
    
    
    76.2Amortization
    
    
    4.6
    
    
    
    0.2Other operating expenses
    
    
    121.3
    
    
    
    116.8Income from operating segments
    
    
    69.5
    
    
    
    55.7Interest expense
    
    
    (32.7
    )
    
    
    (6.5
    )Other financing related expenses
    
    
    
    
    
    
    (8.2
    )Other income
    
    
    0.9
    
    
    
    1.5Income before income taxes and cumulative effect of a change in
accounting principle
    
    
    37.7
    
    
    
    42.5Income tax expense
    
    
    (15.1
    )
    
    
    (1.5
    )Income before cumulative effect of a change in accounting
principle
    
    
    22.6
    
    
    
    41.0Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    (2,205.4
    )Net income (loss)
    
    $
    22.6
    
    
    
    ($2,164.4
    )Basic earnings (loss) per shareIncome before cumulative effect of a change in accounting principle
    
    $
    0.23
    
    
    $
    0.13Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    (6.77
    )Net income (loss)
    
    $
    0.23
    
    
    
    ($6.64
    )Diluted earnings (loss) per shareIncome before cumulative effect of a change in accounting principle
    
    $
    0.22
    
    
    $
    0.13Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    (6.77
    )Net income (loss)
    
    $
    0.22
    
    
    
    ($6.64
    )


The accompanying notes are an integral part of these statements.

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LAIDLAW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
($ in millions)
(unaudited)

PredecessorCompanyThree Months
    
    Three MonthsEnded
    
    EndedNovember 30,
    
    November 30,2003
    
    2002Net income (loss)
    
    $
    22.6
    
    
    
    ($2,164.4
    )Unrealized gains on securities net of
reclassification adjustments for losses included in
net income (net of $1.2 million of taxes; 2002 -NIL)
    
    
    2.0
    
    
    
    1.5Foreign currency translation adjustments
arising during the period (net of NIL taxes)
    
    
    23.1
    
    
    
    (1.4
    )Comprehensive income (loss)
    
    $
    47.7
    
    
    
    ($2,164.3
    )


The accompanying notes are an integral part of these statements.

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LAIDLAW INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in millions)
(unaudited)

PredecessorCompanyThree Months
    
    Three MonthsEnded
    
    EndedNovember 30,
    
    November 30,2003
    
    2002Operating activitiesNet income (loss) for the period
    
    $
    22.6
    
    
    
    ($2,164.4
    )Items not affecting cash:Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    2,205.4Depreciation and amortization
    
    
    80.7
    
    
    
    76.4Other financing related expenses
    
    
    
    
    
    
    8.2Deferred income taxes
    
    
    14.1
    
    
    
    Other items
    
    
    4.1
    
    
    
    (1.7
    )Increase in claims liability and
professional liability insurance accruals
    
    
    5.8
    
    
    
    28.7Cash used in financing working capital items
    
    
    (174.4
    )
    
    
    (140.0
    )Cash portion of other financing related expenses
    
    
    (5.7
    )
    
    
    (9.6
    )Decrease (increase) in restricted cash and cash equivalents
    
    
    1.2
    
    
    
    (11.1
    )Net cash used in operating activities
    
    
    ($51.6
    )
    
    
    ($8.1
    )Investing activitiesPurchase of property, equipment and other assets,
net of proceeds from sale
    
    
    ($39.3
    )
    
    
    ($67.6
    )Expended on acquisitions
    
    
    
    
    
    
    (3.2
    )Net increase in investments
    
    
    (7.7
    )
    
    
    (9.0
    )Net cash used in investing activities
    
    
    ($47.0
    )
    
    
    ($79.8
    )Financing activitiesNet increase in long-term debt
and other long-term liabilities
    
    $
    73.4
    
    
    $
    2.6Net cash provided by financing activities
    
    $
    73.4
    
    
    $
    2.6Net decrease in cash and cash equivalents
    
    
    ($25.2
    )
    
    
    ($85.3
    )Cash and cash equivalents  beginning of period*
    
    
    100.3
    
    
    
    343.5Cash and cash equivalents  end of period*
    
    $
    75.1
    
    
    $
    258.2




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|* |  | These amounts represent the unrestricted cash and cash equivalents
|- |  | ------------------------------------------------------------------

The accompanying notes are an integral part of these statements.

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LAIDLAW INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED NOVEMBER 30, 2003

Note 1  Basis of presentation

The accompanying interim consolidated financial statements of Laidlaw
International, Inc. (the Company) have been prepared in accordance with
accounting principles generally accepted in the United States (U.S. GAAP) for
interim reporting, which conform, in all material respects (except as indicated
in Note 11), with accounting principles generally accepted in Canada (Canadian
GAAP). Accordingly, these financial statements do not include all of the
disclosures required by generally accepted accounting principles for annual
financial statements. In the opinion of management, all adjustments considered
necessary for fair presentation have been included. All such adjustments are
of a normal, recurring nature. Operating results for the three months ended
November 30, 2003 are not necessarily indicative of the results that may be
expected for the full year ending August 31, 2004. For further information,
see the Companys consolidated financial statements, including the accounting
policies and notes thereto, included in the Companys Annual Report on Form
10-K for the fiscal year ended August 31, 2003.

On June 1, 2003, the Company adopted fresh start accounting pursuant to the
guidance provided by the American Institute of Certified Public Accountants
Statement of Position 90-7 Financial Reporting by Entities in Reorganization
under the Bankruptcy Code. In accordance with the principles of fresh start
accounting, the Company adjusted its assets and liabilities to their estimated
fair values as of June 1, 2003. Due to the changes in the financial structure
of the Company following its emergence from bankruptcy in June 2003, and the
application of fresh start accounting, the consolidated financial statements of
the Company issued subsequent to May 31, 2003 are not comparable with the
consolidated financial statements issued by the predecessor company (the
Predecessor Company) prior to June 1, 2003. A black line has been drawn on
the accompanying Consolidated Financial Statements to separate and distinguish
between the Company and the Predecessor Company.

The basic earnings (loss) per share figures are calculated using the weighted
average number of shares outstanding during the respective periods (100.0
million for the three months ended November 30, 2003 and 325.9 million for the
Predecessor Company in the three months ended November 30, 2002). The diluted
earnings per share for the three months ended November 30, 2003 assumes the
sale on the open market of the Companys common shares held in trust.

Note 2  Accounts receivable and revenue

Trade accounts receivable as of November 30, 2003 are net of $552.5 million
(August 31, 2003  $527.9 million) of allowances for uncompensated care and
contractual allowances in the Companys Healthcare Transportation and Emergency
Management business segments (the Healthcare Businesses) and net of an
allowance for doubtful accounts of $6.2 million (August 31, 2003  $5.6
million) in the Companys other three reportable segments.

Note 3  Intangible assets

The contracts and customer relationships are net of $9.0 million of accumulated
amortization at November 30, 2003 (August 31, 2003  $4.5 million).

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Included in deferred charges and other assets are radio frequency licenses
totalling $12.0 million at November 30, 2003 (August 31, 2003  $12.0 million).
The licenses are considered to be assets with indefinite lives and as such, are
not amortized.

Note 4  Long-term debt and interest rate swap

In December 2003, the Company modified the terms of its $625.0 million loan
maturing in June 2009 (the Term B Facility). The interest rate charged on
the loan has been reduced by 1.25%, to LIBOR plus 3.75% from LIBOR plus 5.0%.
Additionally, the LIBOR floor or minimum LIBOR rate has been reduced 0.25% to
1.75% from the previous floor of 2.0%. Additionally, the Company entered into
an interest rate swap agreement (Swap) that effectively converted $110
million of Term B Facility floating rate debt to fixed rate debt with an
interest rate of 6.8%. The Swap was entered into because the Company is
required under the Term B Facility to have a fixed interest rate on a portion
of the underlying debt. The Swap is considered a cash flow hedge and expires in
September 2006.

Note 5  Stock awards and options

Pursuant to the Companys 2003 Equity and Performance Incentive Plan, in the
first quarter of fiscal 2004 the Company issued stock based compensation to
various employees and non-employee directors. These grants to employees
represent the long-term incentive portion of the Companys overall compensation
plan for management. Due to the size and timing of the issuances, the impact
on the Companys consolidated financial statements is immaterial in the first
quarter. A summary of stock based compensation issued in the quarter is as
follows:

Stock options On September 10, 2003, the Company issued 57,375 non-qualified
stock options to non-employee directors with a strike price of $10.33 per
share, which was equal to the fair market value of the Companys stock at the
date of grant. The stock options have a ten-year life and vest ratably over
three years.

Stock options and tandem stock appreciation rights On November 24, 2003, the
Company issued 352,000 non-qualified stock options to key management employees
with a strike price of $13.00 per share, which was equal to the fair market
value of the Companys stock at the date of grant. The stock options have a
ten-year life and vest ratably over three years. In tandem with the stock
option grant each participant received a stock appreciation right which allows
the participant to receive, upon exercise of the right, the difference between
the option strike price and fair market value of the Companys stock on the
exercise date. The Company can choose whether to deliver Company common stock
or cash to the participant upon exercise of the stock appreciation right. Any
exercise of a tandem stock appreciation right will automatically cancel the
underlying stock option and any exercise of the stock option will automatically
cancel the tandem stock appreciation right.

Restricted Shares On September 10, 2003, the Company issued 28,688 shares of
restricted common stock to non-employee directors which vest at the end of a
three-year period. During the vesting period the participant has the rights of
a shareholder in terms of voting and dividend rights but is restricted from
transferring the shares.

Deferred Shares On November 24, 2003, the Company issued 672,000 deferred
shares to key management employees that vest ratably over a four-year period.
On each vesting date the employee will receive common stock of the Company
equal in number to the deferred shares that have vested. Upon delivery of the
Company common stock an equal number of deferred shares are terminated. The
participant has no voting rights with the deferred shares.

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Note 6  Material contingencies

Ability of Greyhound Lines to
continue as a going concern

Based upon the current financial forecast for Greyhound Lines, Inc. (Greyhound
Lines) management is unable to predict with reasonable assurance whether
Greyhound Lines will remain in compliance with the terms of its revolving
credit facility (the Greyhound Facility). Management is closely monitoring
this situation and intends on requesting covenant amendments should it appear
likely such amendments will be necessary to remain in compliance with the
covenants. In addition, Greyhound Lines will be seeking an extension of this
facility prior to its current maturity of October 24, 2004. As of November 30,
2003, Greyhound Lines had $15.0 million of cash borrowings under the Greyhound
Facility, issued letters of credit of $56.8 million and had availability of
$44.1 million. Additionally, Greyhound Lines was in compliance with all
covenants.

Although Greyhound Lines has been successful in obtaining necessary amendments
and extensions to the Greyhound Facility in the past, there can be no
assurances that they will obtain additional modifications in the future if
needed, or that the cost of any future modifications or other changes in the
terms of the Greyhound Facility would not have a material effect on Greyhound
Lines or the Company. If unsuccessful, this may impact Greyhound Lines
ability to continue as a going concern. If the going concern basis on which
Greyhound Lines consolidated financial statements were prepared was not
appropriate for those consolidated financial statements, then significant
adjustments would need to be made to the carrying value of the assets and
liabilities, the reported revenue and expenses and balance sheet
classifications used by Greyhound Lines. Accordingly, if such changes were
made to Greyhound Lines consolidated financial statements, significant
adjustments would be required to the Companys consolidated financial
statements.

Compliance by the Company with the financial and other covenants in its senior
secured credit facility is generally not dependent on the financial results or
financial condition of Greyhound Lines, as Greyhound Lines performance has
been excluded for purposes of determining compliance with such provisions.
Moreover, consistent with the intent to exclude events solely related to
Greyhound Lines, the Companys senior secured credit facility specifies that a
default by Greyhound Lines under the Greyhound Facility or a bankruptcy filing
by Greyhound Lines would not be an event of default under the Companys senior
secured credit facility. However, it is not clear whether and under what
circumstances certain events related to the Companys controlled group
liabilities under ERISA with respect to Greyhound Lines pension plans would
lead to an event of default under the Companys senior secured credit facility
in the context of a Greyhound Lines bankruptcy filing. The Company currently
is working with the agents for the lenders under its senior secured credit
facility to clarify that an event of default is not to be triggered under such
controlled group provisions in the context of a Greyhound Lines bankruptcy
filing in light of the parties intent to exclude events solely related to
Greyhound Lines.

Should Greyhound Lines be unable to continue as a going concern, the Company
may be required to honor certain of Greyhound Lines lease commitments and
pension obligations. The Companys management believes that any required
expenditures with respect to such liabilities would not materially impact the
Companys financial condition. In addition, management believes that the
Company will be successful in either obtaining a clarification of the Companys
senior secured credit facility to confirm the Companys understanding that an
event of default under the facility would not be
triggered in the context of a Greyhound Lines bankruptcy filing or, if such
clarification is not obtained, refinancing the credit facility on terms that
would not have a material effect on the Companys financial condition.

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Organized strikes and work stoppages by unionized employees

The Company is party to collective bargaining agreements that cover the
majority of its employees. The Companys largest collective bargaining
agreement is between Greyhound Lines and the Amalgamated Transit Union, or the
ATU, and expires on January 31, 2004. If the Companys unionized employees
were to engage in a strike or other work stoppage prior to such expiration, or
if the Company is unable to negotiate acceptable extensions of the agreement
resulting in a strike or other work stoppage by the affected workers, the
Company could experience a significant disruption of operations and increased
operating costs as a result of higher wages or benefits paid to union members,
which could have a material adverse effect on our business, financial condition
and results of operations.

Contingent bonuses

The Company and two of its subsidiaries, American Medical Response, Inc.
(AMR) and EmCare Holdings, Inc. (EmCare) are parties to an employment
agreement effective October 1, 2002 with William A. Sanger under which Mr.
Sanger serves as President and Chief Executive Officer of AMR and Chief
Executive Officer of EmCare. Pursuant to the agreement, Mr. Sanger is entitled
to a bonus payment upon a sale, or an initial public offering, of the stock of
AMR and/or EmCare. This bonus is also payable if Mr. Sanger remains employed on
October 1, 2007 and neither a sale nor initial public offering has occurred.
With respect to AMR, the bonus is equal to 5% of the enterprise value of AMR in
excess of $410 million at the time of the event that entitles Mr. Sanger to the
payment. With respect to EmCare, the bonus is equal to 5% of the enterprise
value of EmCare in excess of $125 million at the time of the event that
entitles Mr. Sanger to the payment.

EmCare is party to an employment agreement effective April 1, 2003 with Don S.
Harvey under which Mr. Harvey serves as President and Chief Operating Officer
of EmCare. Pursuant to the agreement, Mr. Harvey is entitled to a bonus payment
upon a sale, or an initial public offering, of the stock of EmCare provided Mr.
Harvey remains employed under the agreement upon the occurrence of such event.
The bonus is equal to 2% of the enterprise value of EmCare in excess of $125
million at the time of the event that entitles Mr. Harvey to the payment.

No amounts were required to be accrued under these agreements as of November
30, 2003.

Environmental matters

The Companys operations are subject to numerous environmental laws,
regulations and guidelines adopted by various governmental authorities in the
jurisdictions in which the Company operates. Liabilities are recorded when
environmental liabilities are either known or considered probable and can be
reasonably estimated. On an ongoing basis, management assesses and evaluates
environmental risk and, when necessary, conducts appropriate corrective
measures. The Company provides for environmental liabilities using its best
estimates. Actual environmental liabilities could differ significantly from
these estimates.

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Income tax matters

The respective tax authorities, in the normal course, audit previous tax
filings. It is not possible at this time to predict the final outcome of these
audits or to establish a reasonable estimate of possible additional taxes
owing, if any.

Legal proceedings

The Company is a defendant in various lawsuits arising in the ordinary course
of business, primarily cases involving personal injury and property damage
claims and employment related claims. Based on the Companys assessment of
known claims and the Predecessor Companys claims payout pattern and discussion
with internal and outside legal counsel and risk management personnel,
management believes that there is no proceeding either threatened or pending
against the Company relating to such claims arising out of the ordinary course
of business that, if resolved against the Company, would have a materially
adverse effect upon the Companys consolidated financial position or results of
operations.

Healthcare Businesses Issues

The Company is currently undergoing investigations by certain government
agencies regarding compliance with Medicare fraud and abuse statutes. The
Company is cooperating with the government agencies conducting these
investigations and is providing requested information to the governmental
agencies. Management believes that the outcome of any of these investigations
would not have a materially adverse effect upon the Company.

Note 7  Cumulative effect of a change in accounting principle

Effective September 1, 2002, the Predecessor Company adopted SFAS 142 and, as a
result, the Predecessor Company ceased to amortize goodwill. SFAS 142 requires
that goodwill be reviewed for impairment upon adoption of SFAS 142 and at least
annually thereafter. Under SFAS 142, goodwill impairment is deemed to exist if
the carrying amount of a reporting unit exceeds its estimated fair value and
the carrying amount of the goodwill exceeds its estimated fair value. To
determine estimated fair value of the reporting units the Predecessor Company
utilized independent valuations of the underlying businesses.

During the three months ended November 30, 2002, the Predecessor Company
completed the impairment assessment as required by SFAS 142 and determined that
a significant portion of its goodwill was impaired as of September 1, 2002. As
a result, the Predecessor Company recorded a non-cash charge of $2,205.4
million as a cumulative effect of a change in accounting principle.

Note 8  Segmented information

The Company has five reportable segments: Education services, Public Transit
services, Greyhound, Healthcare Transportation services and Emergency
Management services. Revenues and income from operations before depreciation
and amortization of the segments for the three months ended November 30, 2003
and 2002 are as follows:

12



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##### Table of Contents



PredecessorCompany($ in millions)
    
    2003
    
    2002Education servicesRevenue
    
    $
    455.7
    
    
    $
    456.2Income from operations before depreciation and amortization
    
    
    109.5
    
    
    
    106.6Public Transit servicesRevenue
    
    $
    72.1
    
    
    $
    70.6Income (loss) from operations before depreciation and amortization
    
    
    0.5
    
    
    
    (0.1
    )GreyhoundRevenue
    
    $
    287.1
    
    
    $
    274.4Income (loss) from operations before depreciation and amortization
    
    
    10.6
    
    
    
    (1.5
    )Healthcare Transportation servicesRevenue
    
    $
    262.0
    
    
    $
    247.5Income from operations before depreciation and amortization
    
    
    19.0
    
    
    
    19.1Emergency Management servicesRevenue
    
    $
    133.4
    
    
    $
    113.5Income from operations before depreciation and amortization
    
    
    10.6
    
    
    
    8.0


The Companys goodwill balance of $183.1 million (August 31, 2003  $183.1 million) is composed of goodwill
from the Education services segment.

Total identifiable assets for each of the reportable segments has not changed materially since August 31,
2003 with the exception of the Education services segment where total identifiable assets at November 30,
2003 were $1,442.3 million compared to $1,309.6 million at August 31, 2003. The increase is due primarily to
seasonal accounts receivable changes.

Consolidated

PredecessorCompany($ in millions)
    
    2003
    
    2002Revenue
    
    $
    1,210.3
    
    
    $
    1,162.2Income from operations before depreciation and amortization
    
    
    150.2
    
    
    
    132.1Depreciation and amortization expense
    
    
    80.7
    
    
    
    76.4Income from operating segments
    
    
    69.5
    
    
    
    55.7Interest expense
    
    
    (32.7
    )
    
    
    (6.5
    )Other financing related expenses
    
    
    
    
    
    
    (8.2
    )Other income
    
    
    0.9
    
    
    
    1.5Income tax expense
    
    
    (15.1
    )
    
    
    (1.5
    )Income for the period before cumulative effect of a change in
accounting principle
    
    $
    22.6
    
    
    $
    41.0


Note 9  Condensed financial statements of restricted subsidiaries

Pursuant to the terms of the Companys $406.0 million Senior Notes, the Company
is required to segregate the consolidated results of operations between the
subsidiaries of the Company that are not a party to the agreement, which are
comprised of the U.S. based businesses in the Greyhound segment (the
Unrestricted Subsidiaries), and the Company and its remaining subsidiaries
(the Restricted Subsidiaries).

13



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##### Table of Contents



Condensed Consolidated Statement of Operations
Three Months Ended November 30, 2003

Restricted
    
    Unrestricted
    
    Consolidated($ millions)
    
    Subsidiaries
    
    Subsidiaries
    
    TotalsRevenue
    
    $
    980.1
    
    
    $
    230.2
    
    
    $
    1,210.3Compensation expense
    
    
    583.8
    
    
    
    101.2
    
    
    
    685.0Accident claims and professional liability expenses
    
    
    73.0
    
    
    
    16.6
    
    
    
    89.6Vehicle related costs
    
    
    35.5
    
    
    
    34.4
    
    
    
    69.9Occupancy costs
    
    
    30.1
    
    
    
    19.8
    
    
    
    49.9Fuel
    
    
    30.9
    
    
    
    13.5
    
    
    
    44.4Depreciation
    
    
    65.6
    
    
    
    10.5
    
    
    
    76.1Amortization
    
    
    4.6
    
    
    
    
    
    
    
    4.6Other operating expenses
    
    
    85.4
    
    
    
    35.9
    
    
    
    121.3Income (loss) from operations
    
    
    71.2
    
    
    
    (1.7
    )
    
    
    69.5Interest expense
    
    
    (25.9
    )
    
    
    (6.8
    )
    
    
    (32.7
    )Other income (loss)
    
    
    1.1
    
    
    
    (0.2
    )
    
    
    0.9Income (loss) from operations before income taxes
    
    
    46.4
    
    
    
    (8.7
    )
    
    
    37.7Income tax recovery (expense)
    
    
    (18.6
    )
    
    
    3.5
    
    
    
    (15.1
    )Net income (loss)
    
    $
    27.8
    
    
    
    ($5.2
    )
    
    $
    22.6


14



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##### Table of Contents



Condensed Consolidated Balance Sheet
November 30, 2003

Restricted
    
    Unrestricted
    
    Consolidated($ millions)
    
    Subsidiaries
    
    Subsidiaries
    
    TotalsCurrent assetsCash and cash equivalents
    
    $
    55.5
    
    
    $
    19.6
    
    
    $
    75.1Restricted cash and cash equivalents
    
    
    67.7
    
    
    
    
    
    
    
    67.7Short-term deposits and marketable securities
    
    
    17.7
    
    
    
    
    
    
    
    17.7Trade accounts receivable
    
    
    659.6
    
    
    
    26.0
    
    
    
    685.6Other receivables
    
    
    38.7
    
    
    
    14.7
    
    
    
    53.4Income taxes recoverable
    
    
    15.5
    
    
    
    0.5
    
    
    
    16.0Parts and supplies
    
    
    38.6
    
    
    
    11.3
    
    
    
    49.9Deferred income tax assets
    
    
    60.0
    
    
    
    9.2
    
    
    
    69.2Other current assets
    
    
    45.5
    
    
    
    13.5
    
    
    
    59.0Total current assets
    
    
    998.8
    
    
    
    94.8
    
    
    
    1,093.6Long-term investments
    
    
    511.5
    
    
    
    41.0
    
    
    
    552.5Property and equipment
    
    
    1,280.7
    
    
    
    371.7
    
    
    
    1,652.4Goodwill
    
    
    183.1
    
    
    
    
    
    
    
    183.1Contracts and customer relationships
    
    
    212.3
    
    
    
    
    
    
    
    212.3Deferred income tax assets
    
    
    93.6
    
    
    
    116.2
    
    
    
    209.8Deferred charges and other assets
    
    
    65.4
    
    
    
    10.4
    
    
    
    75.8Total assets
    
    $
    3,345.4
    
    
    $
    634.1
    
    
    $
    3,979.5Current liabilitiesAccounts payable
    
    $
    102.2
    
    
    $
    24.8
    
    
    $
    127.0Accrued liabilities
    
    
    370.7
    
    
    
    106.4
    
    
    
    477.1Current portion of long-term debt
    
    
    57.2
    
    
    
    18.8
    
    
    
    76.0Total current liabilities
    
    
    530.1
    
    
    
    150.0
    
    
    
    680.1Long-term debt
    
    
    1,075.9
    
    
    
    132.9
    
    
    
    1,208.8Pension liability
    
    
    4.4
    
    
    
    221.6
    
    
    
    226.0Other long-term liabilities
    
    
    435.6
    
    
    
    91.0
    
    
    
    526.6Total liabilities
    
    
    2,046.0
    
    
    
    595.5
    
    
    
    2,641.5Shareholders equity
    
    
    1,299.4
    
    
    
    38.6
    
    
    
    1,338.0Total liabilities and shareholders equity
    
    $
    3,345.4
    
    
    $
    634.1
    
    
    $
    3,979.5


15



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##### Table of Contents



Condensed Consolidated Statement of Cash Flows
Three Months Ended November 30, 2003

Restricted
    
    Unrestricted
    
    Consolidated($ millions)
    
    Subsidiaries
    
    Subsidiaries
    
    TotalsNet cash used in operating activities
    
    
    ($49.8
    )
    
    
    ($1.8
    )
    
    
    ($51.6
    )Cash flows from investing activities:Purchase of property, equipment and other assets, net of proceeds
from sale
    
    
    ($32.8
    )
    
    
    ($6.5
    )
    
    
    ($39.3
    )Net increase in investments
    
    
    (6.0
    )
    
    
    (1.7
    )
    
    
    (7.7
    )Net cash used in investing activities
    
    
    ($38.8
    )
    
    
    ($8.2
    )
    
    
    ($47.0
    )Cash flows from financing activities:Net increase (decrease) in long-term debt and other long-term
liabilities
    
    $
    89.0
    
    
    
    ($15.6
    )
    
    $
    73.4Net cash provided by (used in) financing activities
    
    $
    89.0
    
    
    
    ($15.6
    )
    
    $
    73.4Net increase (decrease) in cash and cash equivalents
    
    $
    0.4
    
    
    
    ($25.6
    )
    
    
    ($25.2
    )Cash and cash equivalents at:Beginning of period
    
    
    55.1
    
    
    
    45.2
    
    
    
    100.3End of period
    
    $
    55.5
    
    
    $
    19.6
    
    
    $
    75.1


Predecessor Company
Condensed Consolidated Statement of Operations
Three Months Ended November 30, 2002

Restricted
    
    Unrestricted
    
    Consolidated($ millions)
    
    Subsidiaries
    
    Subsidiaries
    
    TotalsRevenue
    
    $
    935.9
    
    
    $
    226.3
    
    
    $
    1,162.2Compensation expense
    
    
    550.2
    
    
    
    107.9
    
    
    
    658.1Accident claims and professional
liability expenses
    
    
    80.6
    
    
    
    16.0
    
    
    
    96.6Vehicle related costs
    
    
    35.0
    
    
    
    31.5
    
    
    
    66.5Occupancy costs
    
    
    29.5
    
    
    
    19.1
    
    
    
    48.6Fuel
    
    
    29.3
    
    
    
    14.2
    
    
    
    43.5Depreciation
    
    
    64.0
    
    
    
    12.2
    
    
    
    76.2Amortization
    
    
    0.2
    
    
    
    
    
    
    
    0.2Other operating expenses
    
    
    80.0
    
    
    
    36.8
    
    
    
    116.8Income (loss) from operating segments
    
    
    67.1
    
    
    
    (11.4
    )
    
    
    55.7Interest expense
    
    
    (1.4
    )
    
    
    (5.1
    )
    
    
    (6.5
    )Other financing related expenses
    
    
    (8.2
    )
    
    
    
    
    
    
    (8.2
    )Other income
    
    
    1.5
    
    
    
    
    
    
    
    1.5Income (loss) before income taxes
and cumulative effect of a change in
accounting principle
    
    
    59.0
    
    
    
    (16.5
    )
    
    
    42.5Income tax expense
    
    
    (1.1
    )
    
    
    (0.4
    )
    
    
    (1.5
    )Income (loss) from operations before
cumulative effect of a change in
accounting principle
    
    
    57.9
    
    
    
    (16.9
    )
    
    
    41.0Cumulative effect of a change in
accounting principle
    
    
    (1,775.9
    )
    
    
    (429.5
    )
    
    
    (2,205.4
    )Net loss
    
    
    ($1,718.0
    )
    
    
    ($446.4
    )
    
    
    ($2,164.4
    )


16



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##### Table of Contents



Predecessor Company
Condensed Consolidated Statement of Cash Flows
Three Months Ended November 30, 2002

Restricted
    
    Unrestricted
    
    Consolidated($ millions)
    
    Subsidiaries
    
    Subsidiaries
    
    TotalsNet cash provided by (used in) operating activities
    
    
    ($33.7
    )
    
    $
    25.6
    
    
    
    ($8.1
    )Cash flows from investing activities:Purchase of property, equipment and other assets,
net of proceeds from sale
    
    
    ($35.0
    )
    
    
    ($32.6
    )
    
    
    ($67.6
    )Expended on acquisitions
    
    
    (3.2
    )
    
    
    
    
    
    
    (3.2
    )Net decrease in investments
    
    
    (8.0
    )
    
    
    (1.0
    )
    
    
    (9.0
    )Net cash used in investing activities
    
    
    ($46.2
    )
    
    
    ($33.6
    )
    
    
    ($79.8
    )Cash flows from financing activities:Net increase (decrease) in long-term debt and
other non-current liabilities
    
    
    ($3.3
    )
    
    $
    5.9
    
    
    $
    2.6Net cash provided by (used in) financing activities
    
    
    ($3.3
    )
    
    $
    5.9
    
    
    $
    2.6Net decrease in cash and cash equivalents
    
    
    ($83.2
    )
    
    
    ($2.1
    )
    
    
    ($85.3
    )Cash and cash equivalents at:Beginning of period
    
    
    323.8
    
    
    
    19.7
    
    
    
    343.5End of period
    
    $
    240.6
    
    
    $
    17.6
    
    
    $
    258.2


17



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##### Table of Contents



Condensed Consolidated Balance Sheet
As of August 31, 2003

Restricted
    
    Unrestricted
    
    Consolidated($ millions)
    
    Subsidiaries
    
    Subsidiaries
    
    TotalsCurrent assetsCash and cash equivalents
    
    $
    55.1
    
    
    $
    45.2
    
    
    $
    100.3Restricted cash and cash equivalents
    
    
    39.4
    
    
    
    
    
    
    
    39.4Short-term deposits and marketable securities
    
    
    42.0
    
    
    
    
    
    
    
    42.0Trade accounts receivable
    
    
    478.8
    
    
    
    23.4
    
    
    
    502.2Other receivables
    
    
    31.7
    
    
    
    17.9
    
    
    
    49.6Income taxes recoverable
    
    
    18.3
    
    
    
    (0.3
    )
    
    
    18.0Parts and supplies
    
    
    38.2
    
    
    
    12.0
    
    
    
    50.2Deferred income tax assets
    
    
    76.1
    
    
    
    10.1
    
    
    
    86.2Other current assets
    
    
    50.1
    
    
    
    10.0
    
    
    
    60.1Total current assets
    
    
    829.7
    
    
    
    118.3
    
    
    
    948.0Long-term investments
    
    
    514.1
    
    
    
    39.4
    
    
    
    553.5Property and equipment
    
    
    1,291.2
    
    
    
    378.6
    
    
    
    1,669.8Goodwill
    
    
    183.1
    
    
    
    
    
    
    
    183.1Contracts and customer relationships
    
    
    216.9
    
    
    
    
    
    
    
    216.9Deferred income tax assets
    
    
    88.3
    
    
    
    114.9
    
    
    
    203.2Deferred charges and other assets
    
    
    66.9
    
    
    
    11.3
    
    
    
    78.2Total assets
    
    $
    3,190.2
    
    
    $
    662.5
    
    
    $
    3,852.7Current liabilitiesAccounts payable
    
    $
    87.7
    
    
    $
    31.7
    
    
    $
    119.4Accrued liabilities
    
    
    397.3
    
    
    
    108.7
    
    
    
    506.0Current portion of long-term debt
    
    
    35.7
    
    
    
    33.7
    
    
    
    69.4Total current liabilities
    
    
    520.7
    
    
    
    174.1
    
    
    
    694.8Long-term debt
    
    
    1,012.5
    
    
    
    132.6
    
    
    
    1,145.1Pension liability
    
    
    4.9
    
    
    
    220.8
    
    
    
    225.7Other long-term liabilities
    
    
    408.2
    
    
    
    88.6
    
    
    
    496.8Total liabilities
    
    
    1,946.3
    
    
    
    616.1
    
    
    
    2,562.4Shareholders equity
    
    
    1,243.9
    
    
    
    46.4
    
    
    
    1,290.3Total liabilities and shareholders equity
    
    $
    3,190.2
    
    
    $
    662.5
    
    
    $
    3,852.7


18



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##### Table of Contents



Note 10  Guarantors of Senior Notes

The Companys $406.0 million Senior Notes are guaranteed by the Companys
subsidiaries, other than the Unrestricted Subsidiaries, the Canadian
subsidiaries and any of the Companys subsidiaries that are in the business of
insurance. The condensed consolidated financial statements for the guarantors,
the non-guarantors and the parent company (reported as the Company and as the
Predecessor Company for historical purposes) are as follows:

Condensed Consolidated Statement of Operations
Three months ended November 30, 2003

Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    Guarantors
    
    Non-Guarantors
    
    Eliminations
    
    TotalsRevenue
    
    $
    
    
    
    $
    872.5
    
    
    $
    337.8
    
    
    $
    
    
    
    $
    1,210.3Operating, selling, general and
administrative expenses
    
    
    
    
    
    
    743.3
    
    
    
    316.8
    
    
    
    
    
    
    
    1,060.1Depreciation and amortization expense
    
    
    
    
    
    
    60.2
    
    
    
    20.5
    
    
    
    
    
    
    
    80.7Intercompany management fees (income)
    
    
    
    
    
    
    (0.8
    )
    
    
    0.8
    
    
    
    
    
    
    
    Income
(loss) from operating segments
    
    
    
    
    
    
    69.8
    
    
    
    (0.3
    )
    
    
    
    
    
    
    69.5Interest expense, net of other income
    
    
    (25.1
    )
    
    
    (0.1
    )
    
    
    (6.6
    )
    
    
    
    
    
    
    (31.8
    )Intercompany interest income (expense)
    
    
    (0.5
    )
    
    
    1.1
    
    
    
    (0.6
    )
    
    
    
    
    
    
    Equity in earnings (loss) of intercompany investments
    
    
    38.0
    
    
    
    (5.9
    )
    
    
    
    
    
    
    (32.1
    )
    
    
    Income (loss) before income taxes
    
    
    12.4
    
    
    
    64.9
    
    
    
    (7.5
    )
    
    
    (32.1
    )
    
    
    37.7Income tax recovery (expense)
    
    
    10.2
    
    
    
    (28.3
    )
    
    
    3.0
    
    
    
    
    
    
    
    (15.1
    )Net income (loss)
    
    $
    22.6
    
    
    $
    36.6
    
    
    
    ($4.5
    )
    
    
    ($32.1
    )
    
    $
    22.6


Condensed Consolidated Balance Sheet
As of November 30, 2003

Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    Guarantors
    
    Non-Guarantors
    
    Eliminations
    
    TotalsCurrent assets
    
    $
    22.7
    
    
    $
    832.2
    
    
    $
    238.7
    
    
    $
    
    
    
    $
    1,093.6Long-term deferred income tax assets
    
    
    59.3
    
    
    
    
    
    
    
    187.7
    
    
    
    (37.2
    )
    
    
    209.8Intercompany receivables (payables) and investments
    
    
    2,231.1
    
    
    
    (100.0
    )
    
    
    53.3
    
    
    
    (2,184.4
    )
    
    
    Long-term investments
    
    
    108.7
    
    
    
    114.8
    
    
    
    329.0
    
    
    
    
    
    
    
    552.5Property and equipment
    
    
    
    
    
    
    976.9
    
    
    
    675.5
    
    
    
    
    
    
    
    1,652.4Goodwill
    
    
    
    
    
    
    183.1
    
    
    
    
    
    
    
    
    
    
    
    183.1Contracts and customer relationships
    
    
    
    
    
    
    212.3
    
    
    
    
    
    
    
    
    
    
    
    212.3Deferred charges and other assets
    
    
    44.4
    
    
    
    20.9
    
    
    
    10.5
    
    
    
    
    
    
    
    75.8$
    2,466.2
    
    
    $
    2,240.2
    
    
    $
    1,494.7
    
    
    
    ($2,221.6
    )
    
    $
    3,979.5Current liabilities
    
    $
    69.5
    
    
    $
    271.6
    
    
    $
    339.0
    
    
    $
    
    
    
    $
    680.1Non-current liabilities
    
    
    1,058.7
    
    
    
    182.1
    
    
    
    757.8
    
    
    
    (37.2
    )
    
    
    1,961.4Shareholders equity
    
    
    1,338.0
    
    
    
    1,786.5
    
    
    
    397.9
    
    
    
    (2,184.4
    )
    
    
    1,338.0$
    2,466.2
    
    
    $
    2,240.2
    
    
    $
    1,494.7
    
    
    
    ($2,221.6
    )
    
    $
    3,979.5


19



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##### Table of Contents



Condensed Consolidated Statement of Cash Flows
Three months ended November 30, 2003

Parent
    
    
    
    
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    Guarantors
    
    Non-Guarantors
    
    TotalsNet cash provided by (used in) operating activities
    
    
    ($18.9
    )
    
    
    ($81.8
    )
    
    $
    49.1
    
    
    
    ($51.6
    )Cash flows from investing activities:Purchases of property, equipment and other
assets net of proceeds from sale
    
    $
    
    
    
    
    ($13.7
    )
    
    
    ($25.6
    )
    
    
    ($39.3
    )Net decrease (increase) in investments
    
    
    1.6
    
    
    
    1.2
    
    
    
    (10.5
    )
    
    
    (7.7
    )Net cash provided by (used in) investing activities
    
    $
    1.6
    
    
    
    ($12.5
    )
    
    
    ($36.1
    )
    
    
    ($47.0
    )Cash flows from financing activities:Net increase (decrease) in long-term debt and
other long-term liabilities
    
    $
    83.8
    
    
    
    ($3.6
    )
    
    
    ($6.8
    )
    
    $
    73.4Increase (decrease) in intercompany advances
    
    
    (88.4
    )
    
    
    121.8
    
    
    
    (33.4
    )
    
    
    Net cash provided by (used in) financing activities
    
    
    ($4.6
    )
    
    $
    118.2
    
    
    
    ($40.2
    )
    
    $
    73.4Net increase (decrease) in cash and cash equivalents
    
    
    ($21.9
    )
    
    $
    23.9
    
    
    
    ($27.2
    )
    
    
    ($25.2
    )Cash and cash equivalents at:Beginning of period
    
    
    40.8
    
    
    
    3.8
    
    
    
    55.7
    
    
    
    100.3End of period
    
    $
    18.9
    
    
    $
    27.7
    
    
    $
    28.5
    
    
    $
    75.1


20



---



##### Table of Contents



Predecessor Company
Condensed Consolidated Statement of Operations
Three months ended November 30, 2002

Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    Guarantors
    
    Non-Guarantors
    
    Eliminations
    
    TotalsRevenue
    
    $
    
    
    
    $
    845.9
    
    
    $
    316.3
    
    
    $
    
    
    
    $
    1,162.2Operating, selling, general and
administrative expenses
    
    
    3.0
    
    
    
    709.3
    
    
    
    317.8
    
    
    
    
    
    
    
    1,030.1Depreciation and amortization expense
    
    
    0.1
    
    
    
    55.1
    
    
    
    21.2
    
    
    
    
    
    
    
    76.4Intercompany management fees (income)
    
    
    (19.2
    )
    
    
    15.5
    
    
    
    3.7
    
    
    
    
    
    
    
    Income (loss) from operating segments
    
    
    16.1
    
    
    
    66.0
    
    
    
    (26.4
    )
    
    
    
    
    
    
    55.7Interest expense, net of other income
    
    
    (0.1
    )
    
    
    (0.4
    )
    
    
    (4.5
    )
    
    
    
    
    
    
    (5.0
    )Intercompany interest income (expense)
    
    
    
    
    
    
    0.6
    
    
    
    (0.6
    )
    
    
    
    
    
    
    Other financing related expenses
    
    
    (5.2
    )
    
    
    (3.0
    )
    
    
    
    
    
    
    
    
    
    
    (8.2
    )Equity in earnings (loss) of intercompany investments
    
    
    30.4
    
    
    
    (16.9
    )
    
    
    
    
    
    
    (13.5
    )
    
    
    Income (loss) before income taxes and
cumulative effect of a change in
accounting principle
    
    
    41.2
    
    
    
    46.3
    
    
    
    (31.5
    )
    
    
    (13.5
    )
    
    
    42.5Income tax expense
    
    
    (0.2
    )
    
    
    (0.7
    )
    
    
    (0.6
    )
    
    
    
    
    
    
    (1.5
    )Income (loss) before cumulative
effect of a change in accounting
principle
    
    
    41.0
    
    
    
    45.6
    
    
    
    (32.1
    )
    
    
    (13.5
    )
    
    
    41.0Cumulative effect of a change in
accounting principle
    
    
    
    
    
    
    (1,668.0
    )
    
    
    (537.4
    )
    
    
    
    
    
    
    (2,205.4
    )Equity in loss from cumulative effect
of a change in accounting principle
of intercompany investments
    
    
    (2,205.4
    )
    
    
    (429.5
    )
    
    
    
    
    
    
    2,634.9
    
    
    
    Net income (loss)
    
    
    ($2,164.4
    )
    
    
    ($2,051.9
    )
    
    
    ($569.5
    )
    
    $
    2,621.4
    
    
    
    ($2,164.4
    )


21



---



##### Table of Contents



Predecessor Company
Condensed Consolidated Statement of Cash Flows
For the three months ended November 30, 2002

Consolidated($ millions)
    
    Parent Company
    
    Guarantors
    
    Non-Guarantors
    
    TotalsNet cash provided by (used in) operating activities
    
    $
    5.4
    
    
    
    ($42.1
    )
    
    $
    28.6
    
    
    
    ($8.1
    )Cash flows from investing activities:Purchases of property, equipment and other assets net of proceeds from sale
    
    $
    
    
    
    
    ($24.4
    )
    
    
    ($43.2
    )
    
    
    ($67.6
    )Expended on acquisitions
    
    
    
    
    
    
    (3.2
    )
    
    
    
    
    
    
    (3.2
    )Net decrease (increase) in investments
    
    
    0.4
    
    
    
    (9.5
    )
    
    
    0.1
    
    
    
    (9.0
    )Net cash provided by (used in) investing activities
    
    $
    0.4
    
    
    
    ($37.1
    )
    
    
    ($43.1
    )
    
    
    ($79.8
    )Cash flows from financing activities:Net increase (decrease) in long-term debt and other long-term liabilities
    
    $
    
    
    
    
    ($1.5
    )
    
    $
    4.1
    
    
    $
    2.6Net cash provided by (used in) financing activities
    
    $
    
    
    
    
    ($1.5
    )
    
    $
    4.1
    
    
    $
    2.6Net increase (decrease) in cash and cash equivalents
    
    $
    5.8
    
    
    
    ($80.7
    )
    
    
    ($10.4
    )
    
    
    ($85.3
    )Cash and cash equivalents at:Beginning of period
    
    
    12.0
    
    
    
    291.3
    
    
    
    40.2
    
    
    
    343.5End of period
    
    $
    17.8
    
    
    $
    210.6
    
    
    $
    29.8
    
    
    $
    258.2


Condensed Consolidated Balance Sheet
As of August 31, 2003

Parent
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consolidated($ millions)
    
    Company
    
    Guarantors
    
    Non-Guarantors
    
    Eliminations
    
    TotalsCurrent assets
    
    $
    44.0
    
    
    $
    662.7
    
    
    $
    241.3
    
    
    $
    
    
    
    $
    948.0Long-term deferred income tax assets
    
    
    49.1
    
    
    
    
    
    
    
    183.9
    
    
    
    (29.8
    )
    
    
    203.2Intercompany receivables and investments
    
    
    2,083.4
    
    
    
    25.9
    
    
    
    18.8
    
    
    
    (2,128.1
    )
    
    
    Long-term investments
    
    
    110.3
    
    
    
    129.0
    
    
    
    314.2
    
    
    
    
    
    
    
    553.5Property and equipment
    
    
    
    
    
    
    1,015.7
    
    
    
    654.1
    
    
    
    
    
    
    
    1,669.8Goodwill
    
    
    
    
    
    
    183.1
    
    
    
    
    
    
    
    
    
    
    
    183.1Contracts and customer relationships
    
    
    
    
    
    
    216.8
    
    
    
    0.1
    
    
    
    
    
    
    
    216.9Deferred charges and other assets
    
    
    46.5
    
    
    
    20.2
    
    
    
    11.5
    
    
    
    
    
    
    
    78.2$
    2,333.3
    
    
    $
    2,253.4
    
    
    $
    1,423.9
    
    
    
    ($2,157.9
    )
    
    $
    3,852.7Current liabilities
    
    $
    44.1
    
    
    $
    296.7
    
    
    $
    354.0
    
    
    $
    
    
    
    $
    694.8Non-current liabilities
    
    
    998.9
    
    
    
    180.6
    
    
    
    717.9
    
    
    
    (29.8
    )
    
    
    1,867.6Shareholders equity
    
    
    1,290.3
    
    
    
    1,776.1
    
    
    
    352.0
    
    
    
    (2,128.1
    )
    
    
    1,290.3$
    2,333.3
    
    
    $
    2,253.4
    
    
    $
    1,423.9
    
    
    
    ($2,157.9
    )
    
    $
    3,852.7


22



---



##### Table of Contents



Note 11  United States and Canadian Accounting Principles

These consolidated financial statements have been prepared in accordance with
U.S. GAAP and conform in all material respects with Canadian GAAP, except as
follows:

PredecessorCompanyThree months ended November 30, ($ millions)
    
    2003
    
    2002Net income (loss) in accordance with U.S. GAAP
    
    $
    22.6
    
    
    
    ($2,164.4
    )Effects of differences in accounting for:Costs of start-up activities (a)
    
    
    
    
    
    
    (3.3
    )Impairment charges under U.S. GAAP (b)
    
    
    
    
    
    
    2,205.4Net income in accordance with Canadian GAAP
    
    $
    22.6
    
    
    $
    37.7Basic net income per share
    
    $
    0.23
    
    
    $
    0.12


The amounts in the consolidated balance sheets that materially differ from
those reported under U.S. GAAP are as follows: ($ in millions)

November 30, 2003
    
    August 31, 2003*U.S.
    
    Canadian
    
    U.S.
    
    CanadianGAAP
    
    GAAP
    
    GAAP
    
    GAAPAssets:Long-term investments (c)
    
    $
    552.5
    
    
    $
    559.3
    
    
    $
    553.5
    
    
    $
    563.5Goodwill (d)
    
    
    183.1
    
    
    
    
    
    
    
    183.1
    
    
    
    Deferred income tax assets (c)
    
    
    279.0
    
    
    
    276.7
    
    
    
    289.4
    
    
    
    285.9Liabilities and Shareholders EquityCumulative foreign currency
translation adjustments (c)
    
    
    
    
    
    
    20.5
    
    
    
    
    
    
    
    (2.6
    )Share premium (d)
    
    
    1,358.3
    
    
    
    1,175.2
    
    
    
    1,358.3
    
    
    
    1,175.2Accumulated other comprehensive
income (loss) (c)
    
    
    16.0
    
    
    
    
    
    
    
    (9.1
    )
    
    
    




---

|* |  | Refer to Note 26 of the Notes to the Consolidated Financial Statements as of
August 31, 2003.
|- |  | ---------------------------------------------------------------------------------------------

(a) Reporting on the costs of start-up activities

During fiscal 2000, the Predecessor Company applied SOP 98-5. As a result,
during fiscal 2000, the Predecessor Company expensed $27.3 million in
unamortized costs of start-up activities as a cumulative effect of a change in
accounting principle under U.S. GAAP. Under Canadian GAAP, SOP 98-5 is not
applicable. As a result, under Canadian GAAP, the Predecessor Company did not
record the $27.3 million change in accounting principle amount and continued
with the policy of deferring start-up costs and amortizing the deferrals over a
reasonable period representing an overall adjustment to conform to Canadian
GAAP of $3.3 million expense during the three months ended November 30, 2002.
Fresh Start accounting eliminated this GAAP difference for periods subsequent
to June 1, 2003, because the unamortized deferred start-up costs remaining
under Canadian GAAP were written off on Fresh Start.

23



---



##### Table of Contents



(b) Goodwill impairment

Prior to September 2002, the Predecessor Company had different accounting
policies for determining goodwill impairment for Canadian and U.S. GAAP
reporting. This difference in accounting policy resulted in additional
goodwill impairment losses under Canadian GAAP for periods prior to September
2002.

As of September 1, 2002, the Predecessor Company followed the guidelines of
SFAS No. 142, Goodwill and Other Intangible Assets and similar guidance under
Canadian GAAP. The guidance in both countries discontinued the amortization of
intangible assets with indefinite useful lives. In addition, the Predecessor
Company was required to test goodwill and intangible assets with an indefinite
life for impairment in accordance with the provisions of SFAS 142 and Canadian
GAAP. Pursuant to the guidance, any impairment loss is to be recorded directly
through the deficit account for Canadian GAAP and recorded as a cumulative
effect of change in accounting principle on the consolidated statement of
operations for U.S. GAAP. On September 1, 2002, under Canadian GAAP, this
resulted in an impairment charge totalling $16.0 million. Under U.S. GAAP,
this resulted in an impairment loss totalling $2,205.4 million, recorded as a
cumulative effect of a change in accounting principle.

(c) Comprehensive income

U.S. GAAP requires that a comprehensive income statement be prepared. Under
U.S. GAAP, available-for-sale securities are to be reported at their fair
values, with unrealized gains or losses reported in a separate component of
shareholders equity along with the cumulative foreign currency translation
adjustments. These amounts are tax affected and reported under the balance
sheet caption Accumulated other comprehensive income (loss).

Canadian GAAP does not have the concept of comprehensive income (loss). The
cumulative foreign currency translation adjustment is reported in a separate
component of shareholders equity. In addition, the adjustment of the
available-for-sale securities to their fair values, net of tax, (November 30,
2003  $4.5 million, August 31, 2003  $6.5 million) is not recorded under
Canadian GAAP.

(d) Fresh Start accounting adjustments

As of June 1, 2003, the Company followed the guidance of SOP 90-7 and similar
guidance under Canadian GAAP. The guidance in both countries required the
Company to adjust its assets and liabilities to their estimated fair values as
of June 1, 2003. However, under Canadian GAAP, when the fair value of the
enterprise as a whole exceeds the revalued net asset value, the difference
(allocated to goodwill under U.S. GAAP) is not recorded. As a result, the
$183.1 million of goodwill recorded under U.S. GAAP is not recorded for
Canadian GAAP.

24



---



##### Table of Contents






ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Corporate overview

The following discussion and analysis presents factors which affected the
Companys consolidated results of operations for the three months ended
November 30, 2003 as compared to the same period in 2002 and the Companys
consolidated financial position at November 30, 2003. The following
information should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included in this Form 10-Q and in the Companys
Form 10-K for the year ended August 31, 2003.

We are primarily a bus and healthcare transportation provider in the United
States and Canada. We operate in five reportable segments: Education
services, Public Transit services, Greyhound, Healthcare Transportation
services and Emergency Management services. See Note 8  Segmented
Information of Notes to Consolidated Financial Statements in this Report.

Pursuant to the terms of the Companys $406.0 million Senior Notes, the Company
is required to segregate the consolidated results of operations between the
subsidiaries of the Company that are not a party to the agreement, which are
comprised of the U.S. based businesses in the Greyhound segment (the
Unrestricted Subsidiaries), and the Company and its remaining subsidiaries
(the Restricted Subsidiaries).

Results of Operations

As discussed in Note 1  Basis of Presentation of the Notes to the
Consolidated Financial Statements included in this Report, we adopted fresh
start accounting effective June 1, 2003 and our results of operations and cash
flows have been separated as pre-June 1 and post-May 31, 2003 due to a change
in basis of accounting in the underlying assets and liabilities. For purposes
of the following discussion, we refer to our results prior to June 1, 2003 as
results for the Predecessor Company and we refer to our results after May 31,
2003 as results for the Company. However, for the reasons described in Note 1
and due to other non-recurring adjustments, the Predecessor Companys financial
statements for the periods prior to our emergence from bankruptcy may not be
comparable to the Companys financial statements. Readers should, therefore,
review this material with caution and not rely on the information concerning
the Predecessor Company as being indicative of our future results or providing
an accurate comparison of financial performance.

25



---



##### Table of Contents



Three months ended November 30, 2003 compared with the Predecessor Company
three months ended November 30, 2002 results of operations

PercentagePercentage of Revenue
    
    Increase (Decrease)Three Months endedNovember 30,
    
    November 30,2003
    
    2002Revenue
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    4.1
    %Compensation expense
    
    
    56.6
    
    
    
    56.6
    
    
    
    4.1Accident claims and professional liability expenses
    
    
    7.4
    
    
    
    8.3
    
    
    
    (7.2
    )Vehicle related costs
    
    
    5.8
    
    
    
    5.7
    
    
    
    5.1Occupancy costs
    
    
    4.1
    
    
    
    4.2
    
    
    
    2.7Fuel
    
    
    3.7
    
    
    
    3.7
    
    
    
    2.1Depreciation
    
    
    6.3
    
    
    
    6.6
    
    
    
    (0.1
    )Amortization
    
    
    0.4
    
    
    
    
    
    
    NMOther operating expenses
    
    
    10.0
    
    
    
    10.1
    
    
    
    3.9Income from operating segments
    
    
    5.7
    
    
    
    4.8
    
    
    
    24.8Interest expense
    
    
    (2.7
    )
    
    
    (0.6
    )Other financing related expenses
    
    
    
    
    
    
    (0.7
    )Other income
    
    
    0.1
    
    
    
    0.1Income before income taxes and cumulative effect
of a change in accounting principle
    
    
    3.1
    
    
    
    3.6Income tax expense
    
    
    (1.2
    )
    
    
    (0.1
    )Income before cumulative effect of a change in
accounting principle
    
    
    1.9
    
    
    
    3.5Cumulative effect of a change in accounting
principle
    
    
    
    
    
    
    (189.7
    )Net income (loss)
    
    
    1.9
    %
    
    
    (186.2
    %)


26



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##### Table of Contents



Revenue

The sources of revenue by business segment and by Restricted Subsidiaries and
Unrestricted Subsidiaries are as follows ($ in millions):

Percentage IncreaseRevenue
    
    (Decrease)For the Three Months endedNovember 30, 2003
    
    November 30, 2002Education services
    
    $
    455.7
    
    
    
    37.7
    %
    
    $
    456.2
    
    
    
    39.2
    %
    
    
    (0.1
    %)Public transit services
    
    
    72.1
    
    
    
    6.0
    
    
    
    70.6
    
    
    
    6.1
    
    
    
    2.1Greyhound
    
    
    287.1
    
    
    
    23.7
    
    
    
    274.4
    
    
    
    23.6
    
    
    
    4.6Healthcare transportation services
    
    
    262.0
    
    
    
    21.6
    
    
    
    247.5
    
    
    
    21.3
    
    
    
    5.9Emergency management services
    
    
    133.4
    
    
    
    11.0
    
    
    
    113.5
    
    
    
    9.8
    
    
    
    17.5Total
    
    $
    1,210.3
    
    
    
    100.0
    %
    
    $
    1,162.2
    
    
    
    100.0
    %
    
    
    4.1Restricted Subsidiaries
    
    $
    980.1
    
    
    
    81.0
    %
    
    $
    935.9
    
    
    
    80.5
    %
    
    
    4.7
    %Unrestricted Subsidiaries
    
    
    230.2
    
    
    
    19.0
    
    
    
    226.3
    
    
    
    19.5
    
    
    
    1.7Total
    
    $
    1,210.3
    
    
    
    100.0
    %
    
    $
    1,162.2
    
    
    
    100.0
    %
    
    
    4.1


Revenue in the Education services segment was flat as the effect of lost
business ($29.0 million of which the City of Boston contract comprised $14.2
million) was offset by new contracts ($8.4 million), price increases ($12.8
million), the strengthening of the Canadian currency relative to the U.S.
dollar and some internal growth on existing contracts.

The 2.1% increase in the Public Transit services revenue was primarily
attributable to additional routes and services and, to a lesser extent, price
increases.

The 4.6% increase in revenue in Greyhound segment is primarily attributable to
an increase in Canadian-based revenue due to the strengthening of the Canadian
currency relative to the U.S. dollar and, to a lesser extent, an increase in
tour and charter revenue in Greyhound Lines, Inc. (Greyhound Lines) due to
new contracts.

The 5.9% increase in revenue in the Healthcare Transportation services segment
is due to fee increases and improved collections resulting in an increase in
revenue per transport.

The 17.5% increase in the Emergency Management services segment was primarily
due to new contracts that resulted in an increased number of visits, as well as
an increase in the revenue per visit recorded through improved collections.

The 4.7% increase in the Restricted Subsidiaries revenue was primarily a result
of the increase in revenue in the Healthcare Transportation services and
Emergency Management services segments discussed above.

The 1.7% increase in the Unrestricted Subsidiaries revenue was primarily a
result of an increase in tour and charter revenue at Greyhound Lines due to new
contracts.

27



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##### Table of Contents



EBITDA

EBITDA is presented solely as a supplemental disclosure with respect to
liquidity because management believes it provides useful information regarding
our ability to service or incur debt. EBITDA is not calculated the same way by
all companies. We define EBITDA as income from continuing operations before
interest, income taxes, depreciation, amortization, other income, other
financing related expenses and cumulative effect of a change in accounting
principles. EBITDA is not intended to represent cash flow for the period, is
not presented as an alternative to operating income as an indicator of
operating performance, should not be considered in isolation or as a substitute
for measures of performance prepared in accordance with generally accepted
accounting principles (GAAP) and is not indicative of operating income or
cash flow from operations as determined under GAAP.

The following is a reconciliation of our EBITDA to the net income (loss) and
net cash used in operating activities, the GAAP measures management believes to
be most directly comparable to EBITDA:

The Three Months endedNovember 30,
    
    November 30,2003
    
    2002EBITDA
    
    $
    150.2
    
    
    $
    132.1Depreciation and amortization
    
    
    (80.7
    )
    
    
    (76.4
    )Interest expense
    
    
    (32.7
    )
    
    
    (6.5
    )Other income
    
    
    0.9
    
    
    
    1.5Other financing related expenses
    
    
    
    
    
    
    (8.2
    )Income tax expense
    
    
    (15.1
    )
    
    
    (1.5
    )Income from continuing operations before cumulative
effect of a change in accounting principle
    
    
    22.6
    
    
    
    41.0Cumulative effect of a change in accounting principle
    
    
    
    
    
    
    (2,205.4
    )Net income (loss)
    
    $
    22.6
    
    
    
    ($2,164.4
    )


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The Three Months endedNovember 30,
    
    November 30,2003
    
    2002EBITDA
    
    $
    150.2
    
    
    $
    132.1Cash paid for interest
    
    
    (20.2
    )
    
    
    (11.3
    )Cash paid for other financing related expenses
    
    
    (5.7
    )
    
    
    (9.6
    )Other income
    
    
    0.9
    
    
    
    1.5Cash received (paid) for income taxes
    
    
    1.1
    
    
    
    (1.0
    )Increase in claims liabilities and professional liability reserves
    
    
    5.8
    
    
    
    28.7Cash used in financing other working capital items
    
    
    (184.8
    )
    
    
    (135.7
    )Decrease (increase) in restricted cash and cash equivalents
    
    
    1.2
    
    
    
    (11.1
    )Other
    
    
    (0.1
    )
    
    
    (1.7
    )Net cash used in operating activities
    
    
    ($51.6
    )
    
    
    ($8.1
    )


EBITDA by segment and by Restricted Subsidiaries and Unrestricted Subsidiaries
is as follows ($ in millions):

PercentageIncreaseEBITDA
    
    (Decrease)For the Three Months endedNovember 30,
    
    November 30,2003
    
    2002Education services
    
    $
    109.5
    
    
    
    72.9
    %
    
    $
    106.6
    
    
    
    80.7
    %
    
    
    2.7
    %Public Transit services
    
    
    0.5
    
    
    
    0.3
    
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    NMGreyhound
    
    
    10.6
    
    
    
    7.1
    
    
    
    (1.5
    )
    
    
    (1.1
    )
    
    NMHealthcare Transportation services
    
    
    19.0
    
    
    
    12.6
    
    
    
    19.1
    
    
    
    14.4
    
    
    
    (0.5
    )Emergency Management services
    
    
    10.6
    
    
    
    7.1
    
    
    
    8.0
    
    
    
    6.1
    
    
    
    32.5Total
    
    $
    150.2
    
    
    
    100.0
    %
    
    $
    132.1
    
    
    
    100.0
    %
    
    
    13.7Restricted Subsidiaries
    
    $
    141.4
    
    
    
    94.1
    %
    
    
    131.3
    
    
    
    99.4
    %
    
    
    7.7
    %Unrestricted Subsidiaries
    
    
    8.8
    
    
    
    5.9
    
    
    
    0.8
    
    
    
    0.6
    
    
    NMTotal
    
    $
    150.2
    
    
    
    100.0
    %
    
    $
    132.1
    
    
    
    100.0
    %
    
    
    13.7


Income from operations before depreciation and amortization

The following is a discussion of factors affecting the income from operations
before depreciation and amortization, of the Companys business segments for
the reported periods.

In the three months ended November 30, 2003, the income from operations before
depreciation and amortization in the Education services segment was $2.9
million higher than the three months ended November 30, 2002. Reduced accident
claims costs and a strengthening of the Canadian currency relative to the U.S.
dollar were the primary factors.

In the three months ended November 30, 2003, the income from operations before
depreciation and amortization in the Public Transit services segment was $0.6
million higher than 2002. The contribution associated with increased revenue
and lower accident claims costs were the primary reasons for the increase.

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In the three months ended November 30, 2003, the income from operations before
depreciation and amortization in the Greyhound segment was $12.1 million higher
than the three months ended November 30, 2002. The increase is principally the
result of significant cost reductions at Greyhound Lines due to reduced miles
operated and head count reductions as well as contributions from revenue
increases.

In the three months ended November 30, 2003, the income from operations before
depreciation and amortization in the Healthcare Transportation services segment
was $0.1 million lower than 2002, as the increase in revenue was offset by
increased compensation expenses.

In the three months ended November 30, 2003, the income from operations before
depreciation and amortization in the Emergency Management services segment
increased $2.6 million from 2002. The increase was primarily due to the
contribution from the increased revenue.

In the three months ended November 30, 2003, the income from operations before
depreciation and amortization in the Restricted Subsidiaries was $10.1 million
higher than the three months ended November 30, 2002 due to improvements in all
segments as discussed above.

In the three months ended November 30, 2003, the income from operations before
depreciation and amortization in the Unrestricted Subsidiaries was $8.0 million
higher than the three months ended November 30, 2002 due to cost reduction
initiatives taken at Greyhound Lines.

Depreciation expense

Depreciation expense for the three months ended November 30, 2003 was basically
unchanged from the three months ended November 30, 2002, reflecting a $1.6
million increase in depreciation for the Restricted Subsidiaries and a $1.7
million decrease in depreciation for the Unrestricted Subsidiaries.

Amortization expense

Amortization expense for the three months ended November 30, 2003 increased
$4.4 million to $4.6 million from $0.2 million due to the amortization of
contract values and customer relationships that were established at fresh
start. No amortization related to the Unrestricted Subsidiaries.

Interest expense

In the three months ended November 30, 2003, interest expense increased to
$32.7 million from $6.5 million in the three months ended November 30, 2002.
The increase is primarily due to interest incurred on long-term debt associated
with our senior secured credit facility and the senior notes. No interest
expense was incurred on prepetition debt for the three months ended November
30, 2002. Interest expense for the Unrestricted Subsidiaries increased $1.7
million, reflecting a higher effective interest rate on borrowings as a result
of discounts on long-term debt recorded as fair value adjustments at fresh
start.

Other financing related expenses

For the three months ended November 30, 2003 there were no other financing
related expenses as all expenses were incurred prior to the reorganization.

Other financing related expenses for the Predecessor Company for the three
months ended November 30, 2002 were $8.2 million (of which none was
attributable to the Unrestricted Subsidiaries). Other financing related
expenses principally represent professional fees and

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other costs incurred by the Predecessor Company. The professional fees and
other costs include financing, accounting, legal and consulting services
incurred during the reorganization process.

Other income

Other income was $0.9 million in the three months ended November 30, 2003,
relatively unchanged from the $1.5 million in the three months ended November
30, 2002 .

Cumulative effect of a change in accounting principle

Effective September 1, 2002, we adopted SFAS 142 and, as a result, we recorded
a non-cash charge of $2,205.4 million on September 1, 2002 as a cumulative
effect of a change in accounting principle.

Income tax expense

Income tax expense for the three months ended November 30, 2003 was $15.1
million compared to $1.5 million in the three months ended November 30, 2002.
Tax expense in the prior period only represented estimated cash taxes as the
Predecessor Company had established a full valuation allowance against its net
deferred tax assets. Of the $15.1 million provided in the three months ended
November 30, 2003, $1.0 million represents cash taxes payable and the balance
reflects the utilization of deferred tax assets.

Net income (loss) and earnings (loss) per share

For the three months ended November 30, 2003, the net income was $22.6 million
or $0.23 per share. The weighted average number of common shares was 100.0
million.

The net loss of the Predecessor Company was ($2,164.4) million or $(6.64) per
share for the three months ended November 30, 2002. The weighted average
number of common shares of the Predecessor Company for the period was 325.9
million.

Liquidity and capital resources

For the three months ended November 30, 2003 cash used in operating activities
was $51.6 million (of which $1.8 million was attributable to the Unrestricted
Subsidiaries) compared to $8.1 million in the three months ended November 30,
2002. The increase in cash used in operating activities of $43.5 million is
primarily a result of the increase in cash used to finance working capital of
$34.4 million, principally associated with increased accounts receivable in
both the Healthcare Transportation and Emergency Management services segments
as a result of revenue growth.

Net expenditures for the purchase of capital assets for normal replacement
requirements and increases in service were decreased to $39.3 million in the
three months ended November 30, 2003 from $67.6 million for the three months
ended November 30, 2002. This decrease is primarily a result of curtailed
capital spending. No portion of the purchases of capital assets for the
reported periods were financed by notes payable, operating leases and/or
capital leases.

The Company requires significant cash flows to finance capital expenditures and
to meet its debt service and other continuing obligations. Although we will
continue to be substantially leveraged, we believe that borrowings under the
revolving credit facility, together with existing cash and cash flow from
operations, will be sufficient to fund our anticipated capital expenditures and

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working capital requirements for the foreseeable future, including payment
obligations under our debt agreements and other commitments.

In June 2003, the Company established a $200.0 million senior secured revolving
credit facility (the Revolver) due June 2008. As at November 30, 2003, $93.1
million was drawn on the revolver for cash borrowing, $20.7 million for the
issuance of letters of credit and $73.2 million was reserved for guarantee
obligations on Greyhound Lines vehicle leases, leaving availability of $13.0
million.

Under the terms of the Companys various debt agreements the Company is
required to meet certain financial covenants including a fixed charge coverage
ratio, leverage ratio, interest coverage ratio, net tangible asset ratio and
maximum senior secured leverage ratio as well as certain non-financial
covenants. As of November 30, 2003, the Company was in compliance with all
such covenants.

Critical Accounting Policies

Reference is made to the Consolidated Financial Statements and Notes to
Consolidated Financial Statements included in this Form 10-Q and in the
Companys Form 10-K for the year ended August 31, 2003. In preparing the
consolidated financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Changes to these assumptions and estimates could have a
material effect on the Companys consolidated financial statements. Reference
is made to Critical Accounting Policies in Item 7 of the Companys Form 10-K
for the year ended August 31, 2003 for a description of the Companys most
critical accounting policies.

Commitments and Contingencies

Reference is made to Note 22  Commitments and Contingencies of Notes to
Consolidated Financial Statements in the Companys Form 10-K for the year ended
August 31, 2003 for a description of the Companys material commitments.
Reference is made to Note 6  Material Contingencies of Notes to Consolidated
Financial Statements in this Report for a description of the Companys material
contingencies.

Forward looking statements

Certain statements contained in this report, including statements regarding the
status of future operating results and market opportunities, possible asset
dispositions and other statements that are not historical facts are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Such statements involve certain risks,
uncertainties and assumptions that include, but are not limited to; Greyhound
Lines ability to continue as a going concern; market factors, including
competitive pressures and changes in pricing policies; changes in
interpretations of existing legislation or the adoption of new legislation;
loss of major customers; the significant restrictive covenants in the senior
secured credit facility; the ability to continue to satisfy bonding
requirements for existing or new customers; volatility in energy costs; the
costs and risks associated with litigation; costs related to accident and other
claims; potential pension plan funding requirements; and general economic
conditions. Should one or more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, actual outcomes may vary
materially from those indicated. For further risks, uncertainties and
contingencies relating to the Company, see Note Regarding Forward-Looking
Statements and Item 7 Managements Discussion and Analysis of Financial
Condition and

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Results of Operations  Risk Factors in the Companys Form 10-K for the year
ended August 31, 2003 and in the Companys other filings from time to time with
the Securities and Exchange Commission.

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LAIDLAW INTERNATIONAL, INC.




Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in market risk from the disclosures
provided in Item 7A. Quantitative and Qualitative Disclosures About Market
Risk as set forth in the Companys 2003 Form 10-K except as follows:

In December 2003, the Company modified the terms of its $625.0 million loan
maturing in June 2009 (the Term B Facility). The interest rate charged on
the loan has been reduced by 1.25%, to LIBOR plus 3.75% from LIBOR plus 5.0%.
Additionally, the LIBOR floor or minimum LIBOR rate has been reduced 0.25% to
1.75% from the previous floor of 2.0%. Additionally, the Company entered into
an interest rate swap agreement (Swap) that effectively converted $110
million of Term B Facility floating rate debt to fixed rate debt with an
interest rate of 6.8%. The Swap was entered into because the Company is
required under the Term B Facility to have a fixed interest rate on a portion
of the underlying debt. The Swap is considered a cash flow hedge and expires in
September 2006.




Item 4. Controls and Procedures

The Company maintains a set of disclosure controls and procedures designed to
ensure that information required to be disclosed by the Company in reports that
it files or submits under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in
Securities and Exchange Commission rules and forms. As of the end of the
period covered by this quarterly report, an evaluation was carried out under
the supervision and with the participation of the Companys management,
including its Chief Executive Officer and Chief Financial Officer, of the
effectiveness of its disclosure controls and procedures. Based on that
evaluation, the Companys Chief Executive Officer and Chief Financial Officer
have concluded that the Companys disclosure controls and procedures are
effective.

During the most recent fiscal quarter, there have not been any changes in the
Companys internal controls over financial reporting or in other factors that
have materially affected, or are reasonably likely to materially affect, the
Companys internal controls over financial reporting.

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LAIDLAW INTERNATIONAL, INC.




PART II. OTHER INFORMATION




Item 1. Legal Proceedings

Reference is made to Part I, Item 3 of the Companys Form 10-K for the year
ended August 31, 2003 for a description of certain legal proceedings presently
pending. There are no material new cases to report against the Company or its
subsidiaries and there have been no material changes in the previously reported
proceedings, except as set forth below:

General Litigation and Other Disputes

During the first quarter of fiscal 2004, AMR was advised by the United States
Department of Justice (DOJ), that it continues to investigate certain
business practices at AMR. The specific practices at issue were primarily the
focus of a January 4, 2002 subpoena served on AMR by the Office of the
Inspector General of the United States Department of Health and Human Services.
Specifically, DOJ is investigating (1) whether ambulance transports involving
Medicare eligible patients complied with the medically necessary requirement
imposed by Medicare regulations, (2) whether patient signatures, when required,
were properly obtained from Medicare eligible patients; and (3) whether
discounts in violation of the Federal Anti-Kickback Act were provided by AMR in
exchange for referrals involving Medicare eligible patients. At this juncture,
it is not possible to predict the ultimate conclusion of this investigation,
nor is it possible to calculate any possible financial exposure to the Company.

As previously reported, the Company is subject to certain environmental
liabilities. Specifically, Greyhound Lines may be liable for certain
environmental liabilities and clean-up costs at the various facilities
presently or formerly owned or leased by Greyhound Lines. Based upon surveys
conducted solely by Greyhound Liness personnel or its experts, 36 active and
seven inactive locations have been identified as sites requiring potential
clean-up and/or remediation as of November 30, 2003. Additionally, Greyhound
Lines is potentially liable with respect to six active and seven inactive
locations which the EPA has designated as Superfund sites. Greyhound Lines, as
well as other parties designated by the EPA as potentially responsible parties,
face exposure for costs related to the clean-up of those sites. Based on the
EPAs enforcement activities to date, Greyhound Lines believes its liability at
these sites will not be material because its involvement was as a de minimis
generator of wastes disposed of at the sites. In light of its minimal
involvement, Greyhound Lines has been negotiating to be released from liability
in return for the payment of nominal settlement amounts.

Greyhound Lines has recorded a total environmental liability of $5.6 million at
November 30, 2003, of which approximately $1.0 million is indemnifiable by the
predecessor owner of Greyhound Lines domestic bus operations, Viad Corp. The
environmental liability relates to sites identified for potential clean-up
and/or remediation and the majority of this environmental liability is expected
to be paid over the next five to ten years. As of the date of this report, the
Company is not aware of any additional sites to be identified, and management
believes that adequate accruals have been made related to all known
environmental matters.

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Item 6. Exhibits and Reports on Form 8-K

(a)
    
    Exhibits10.1
    
    Amendment No. 2 to Credit Agreement, dated as of
December 17, 2003, among Laidlaw International, Inc., certain
of its subsidiaries and the financial institutions named
herein.31.1
    
    Principal Executive Officers Certifications
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Principal Financial Officers Certifications
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification Pursuant to 18 U.S.C. § 1350
(Section 906 of Sarbanes-Oxley Act of 2002)(b)
    
    Reports on Form 8-K during the quarter ended November 30, 2003Current Report on Form 8-K, dated November 18, 2003, furnished to the
Securities and Exchange Commission and relating to the Companys press
release announcing its financial results for the fiscal year ended August
31, 2003.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

LAIDLAW INTERNATIONAL, INC.By: /s/ Douglas A. CartyDate: January 13, 2004
    
    Douglas A. CartySenior Vice President and Chief Financial OfficerDuly Authorized Officer and Principal FinancialOfficer


37